The Fleecing of Black Borrowers - washingtonpost.com

The Fleecing of Black Borrowers - washingtonpost.com:

"According to new Federal Reserve Board data, less than one-fifth of non-Hispanic white borrowers took out high-priced loans last year. But for African Americans, the proportion was more than half. Black borrowers paid -- and will continue to pay for the life of these loans -- high prices at more than triple the rate that whites did. And Latinos were more than 1 1/2 times more likely than whites to pay high prices.

Liberals will cite these numbers as evidence of lending discrimination. Conservatives will argue that minorities should pay higher prices because they have lower incomes and less wealth, making them financially riskier. These explanations tell only part of the story."

The home loan market is what economists call "inefficient" and what the rest of us might call plain unfair: Minorities -- and many whites -- receive high-priced loans when they are financially qualified for lower-priced loans.

Why? As an official of the American Bankers Association, quoted in The Post, put it: "People shop more for a loaf of bread than they do for a mortgage."

But why don't Americans shop for the best loan price? Perhaps it's because loan officers and brokers present a certain price as "the rate for which you qualify" and some 40 percent of Americans then erroneously believe that under the law this is the best rate for which they qualify. Because lenders are less likely to suggest to minorities that they have any choice, more than 65 percent of African Americans believe this is indeed the rate they must pay.

Consumers who know that the law does not control prices may think their loan broker will shop for the best price. But lenders pay brokers kickbacks ("yield spread premiums") for selling loans priced higher than those for which borrowers qualify. Data show that brokers are more likely to fleece minority borrowers than white borrowers to "earn" these kickbacks.